Gov. Quinn floats media download tax

Ill. Governor Pat Quinn is proposing a tax on technology. He wants to add the state's sales tax to music and movie downloads.

The revenue would help fill the state's $13 billion budget deficit. The state's 6.25-percent sales tax would be added to digital purchases from websites like iTunes and Amazon.

The state's budget crisis needs no introduction -- and the governor's attempts to increase the state income tax for education have not borne much fruit. Now, Pat Quinn says a way to raise revenue is to go after entertainment products that have largely escaped the taxman's grasp.

On mobile phones, on computers, even through TV screens, increasingly, people are getting their entertainment seamlessly from the World Wide Web -- often without paying tax.

At Amazon.com, the effort has been to resist retail taxation schemes on the basis that what is sold here is no different from other mail-order businesses -- which have long been exempt from retail sales taxes in most states. North Carolina has been trying for years to tax purchases on Amazon, saying it operates like a traditional establishment.

Good luck, says one computer consultant.

"It is one of their key differentiators against a traditional brick-and-mortar store, and if that is taken away from them, one of their big price advantages disappears," said Jason Shah, JSDF Computer Consultants.

But fighting online bigwigs such as Amazon or Apple will be just one of Governor Quinn's challenges in pushing through a 6.25 percent tax on digital products.

"It is hard to justify taxes for digital downloads, which essentially have marginal costs of zero," said Shah.

Springfield says it would bring in $10 million, a fraction of the revenue needed to fill the state's $13 billion budget gap.

Shah, a strategist and technology developer for mobile applications, says music and video piracy will not increase and people in his industry will not abandon Illinois if the tax is passed. Nineteen states already have similar laws on the books.

"The people who would pay a dollar versus $1.06, that's not going to drive them to piracy. They either already are pirating music or they don't pirate music at all," said Shah. "It comes back to consumer behavior. I don't think that an additional sales tax is enough for a company to say I'm leaving Illinois."

Republicans are saying this is a tax on young people. They say, if you download two movies a month over a year, you would pay $22.56 in tax on top of the money you spent for purchasing the movie.

It's $10 million in revenue now -- but that could be exponentially more in the years to come.

UPDATE - April 22, 2010: Gov. Pat Quinn now says he isn't interested in taxing music or video downloads to help the state dig out of a $13 billion budget hole. The administration floated the idea with lawmakers. But Quinn on Thursday said he's focused on his call to raise the state income tax by one-third to avoid deep cuts in education.